ComfortDelGro - Possible Consolidation In The Ride Hailing Space

According to media reports citing sources with knowledge of the matter, Uber Technologies has reached an agreement to sell its Southeast Asian business to rival Grab. According to the report, Uber would get a stake of 25% to 30% in the combined business.

As highlighted in our previous report dated 2 Feb 2018, we see two possible notable outcomes for ComfortDelGro (CDG):

Grab will become the only 3rd party ride-hailing service provider in Singapore, which allows it to control all ride bookings, thereby further eroding ComfortDelGro’s competitive advantage of having scale in the ride-booking industry, and/or

being in a monopolistic position also allows Grab to have control in raising car rental rates, reducing subsidies, and changing fare structures in order to improve profitability, all of which we deem beneficial for ComfortDelGro.

However, we emphasize that this news is neither made official by Uber nor Grab. And even if the news is true, we believe the consolidation in Singapore will still be subject to regulatory approval.

All said, we maintain our positive view on ComfortDelGro with more stabilized taxi business coupled with limited downside as we continue to expect earnings to bottom-out in FY18.

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